AFTER PHAILIN: UNDERSTANDING CYCLONE RISK IN INDIA

Transcription

1 AIR WHITE PAPER AFTER PHAILIN: UNDERSTANDING CYCLONE RISK IN INDIA In 2013, Phailin, the first major tropical cyclone to hit India since 1999, made landfall as a Category 4 storm near Gopalpur on India s east coast, killing more than 25 people and generating economic losses of an estimated USD 700 million to USD 4.5 billion (according to local governments and Swiss Re, respectively). While it was a very strong storm, Phailin fortunately made landfall in a relatively sparsely populated area. AIR conducted a study for the General Insurance Corporation of India (GIC Re), the sole reinsurance company in the Indian insurance market, to quantify potential losses had Phailin made landfall at different locations on India s east and west coasts, as well as potential impact of storms stronger than Phailin. AIR s analysis indicates that the industry should be prepared for significantly higher losses. INTRODUCTION Cyclone Phailin, the strongest cyclone to hit India in 14 years, made landfall on the eastern coast of India near Gopalpur in Orissa around 21:15 local time on Saturday, October 12. Phailin arrived as a Category 4 storm with maximum sustained 3-minute winds of km/h at landfall, according to the Indian Meteorological Department (IMD). Phailin's high winds and heavy rain up to 300 millimeters in some regions flooded roads, uprooted trees, damaged crops, cut off electricity to millions of homes, and destroyed thousands of poorly constructed homes. Phailin also damaged infrastructure, including roads, bridges, and power and communications networks. Before the storm arrived, India conducted its largest storm evacuation ever, relocating more than 900,000 people from the coast to shelters in schools and government offices. The evacuation effort was credited for the relatively low death toll. This was in stark contrast to the Orissa super cyclone of 1999, which claimed over 10,000 lives and had made landfall around 160 km north of where Phailin made landfall. Due to the continental shelf being steeper and overland terrain being higher, the effect of storm surge flooding was limited. Phailin brought a storm surge of more than 3.5 meters (11 feet) to portions of the coast. The districts of Balasore, Mayurbhanj, Jajpur, and Bhadrak experienced inland flooding, which was triggered by the heavy rainfall that accompanied the cyclone. It has been estimated that the agricultural sector lost about 15% of their rice crop as a India s insurance industry was lucky to be left relatively unscathed with Cyclone Phailin. If Phailin were to make landfall at places with high exposure concentration, companies would have experienced huge loses. Dr. Praveen Sandri, Managing Director and Senior Vice President AIR Worldwide India When Phailin happened, I asked AIR to perform an analysis to assess the loss potential if Phailin or a stronger cyclone were to affect different parts of India. We suspected that the losses could be much higher, which was confirmed by AIR s study. Because the penetration of insurance is so low in India, a natural catastrophe pool may be a very welcome addition to the risk landscape. Mr. A. K. Roy, Chairman and Managing Director GIC Re

2 result of flooding. While crop insurance is offered for many crops, participation remains relatively low because challenges remain in the pricing and administration of insurance products and in effective risk diversification. While economic losses due to Phailin are estimated at USD 700 million to USD 4.5 billion, the insured losses are only a fraction of this value. There was significant damage to crops and residential properties, but a high proportion of residential losses in the region are not insured. Residential structures are generally less resistant to wind and water damage than commercial/industrial buildings. India s diverse commercial/industrial building stock continues to change as older structures are replaced with ones that are engineered for wind and water resistance. Insurance coverage in the affected area varies by line of business; overall take-up rates (insurance penetration) in the hardest hit regions are low. MODELED LOSSES FOR PHAILIN AIR began tracking Phailin as soon as it was classified as a cyclone. After landfall, AIR input available meteorological data from the India Meteorological Department and other national and international agencies parameters into the AIR Tropical Cyclone Model for India. Modeled parameters include maximum sustained wind speed, central pressure, radius of maximum winds, maximum precipitation, and radius of precipitation, among others. While the track of the storm is easy to ascertain using satellite imagery, there is considerable uncertainty in the reported intensity parameters. For this reason, AIR created several scenarios of Phailin with identical tracks, but different landfall parameters. These scenarios were run against the AIR Insurable Exposure Database (IED) for India, which is a comprehensive database of risk counts, replacement values, and vulnerability attributes of all insurable properties in India. After applying insurance take-up rate assumptions, AIR s analysis resulted in insured loss estimates ranging from USD 22 million to USD 106 million (Table 1). In the AIR Loss Estimates in Real Time (ALERT ) posting on October 16, 2013, AIR indicated that insured losses in India were not expected to exceed USD 150 million. AIR also provided several similar events from the stochastic catalog of the AIR Cyclone Model for India to help clients assess potential losses to their own portfolios. When run against the industry database, the stochastic events resulted in insured losses of USD 77 million, which was well within the range of what the industry actually paid. Table 1. Simulated scenarios for Cyclone Phailin (Source: AIR) Scenario Central Pressure (mb) Rmax (miles) Forward Speed (mph) Insurable Loss (USD Millions) Insured Loss (USD Millions) Scenario Scenario Scenario Scenario Scenario Scenario , AIR Worldwide 2

3 EXPLORING THE POTENTIAL IMPACT OF DIFFERENT SCENARIOS From the time Phailin was categorized as a cyclone, there was a lot of interest and speculation in the Indian insurance market regarding potential losses. The industry was relieved when Phailin made landfall in an area with low insured exposures. In the aftermath of the storm, GIC Re wanted to understand the potential impact to the Indian insurance industry had Phailin made landfall in more populated areas in India, as well as the impact of an even stronger cyclone. For this purpose, AIR conducted a study to evaluate the impact of three storms (similar to Phailin, 1999 s Orissa, and 2013 s Haiyan) making landfall at 11 different locations in India. Table 2 shows the parameters for the three different variants and Figure 1 shows the map with potential landfall locations, with the AIR industry insurable exposure in the background. Variant Table 2. Parameters for the different scenarios (Source: AIR) Central Pressure (mb) Similar To Wind Speed (km/h / mph) Rmax (miles) A 940 Phailin 210/ B 912 Orissa 260/ C 890 Haiyan 315/ Each storm variant/track combination was simulated using the AIR Tropical Cyclone Model for India for a total of 33 modeled scenarios. Figure 1. Simulated landfall locations (Source: AIR) 2014 AIR Worldwide 3

4 Wind field footprints for each scenario were modeled along the different landfall locations. Figure 3 shows the wind speeds at different locations for Variant C. Based on AIR s IED for India, insurable losses were estimated for each scenario (Figure 2). The insurable loss from cyclone Phailin in Gopalpur, where the storm made landfall, is quite small. However if Phailin made landfall in areas with higher exposures like Chennai or Mumbai, losses could be in the range of USD 1 billion to USD 5 billion. A stronger storm like Orissa (Variant B) would result in even higher losses in these densely populated areas, with insurable losses on the order of USD 5 billion to USD 30 billion. An event similar to Haiyan hitting India, while unlikely, cannot be ruled out. A Haiyan-like storm (Variant C) hitting Chennai could result in insurable losses exceeding USD 30 billion; Mumbai could experience losses of well over USD 100 billion. Figure 2. Insurable losses at different landfall locations (Source: AIR) Figure 3. Wind field footprints for Variant C (Source: AIR) 2014 AIR Worldwide 4

5 As mentioned previously, the penetration of insurance in India is low. Figure 4 shows insured losses after regionspecific take-up rates were applied to the insurable losses. The insured losses for populated areas like Chennai and Mumbai would be between USD 2 billion to USD 3 billion for a storm of Haiyan s strength. CONCLUSION After several years of low activity, Phailin in 2013 was the second strongest cyclone to make landfall in India in recorded history. Despite its strength, Phailin resulted in very low insured losses due to relatively few exposures in the landfall region and low insurance take-up rates. By analyzing events similar to Phailin, Haiyan, and Orissa at several landfall locations, AIR determined that insurable losses for India could be much higher, exceeding USD 30 billion to 50 billion for densely populated landfall regions and even exceeding USD 100 billion in some extreme scenarios. The AIR Cyclone Model for India can help the industry prepare for a full range of potential losses and to plan appropriate risk management and risk transfer strategies. Figure 4. Insured losses at different landfall locations (Source: AIR) 2014 AIR Worldwide 5

6 CONTACT If you have any questions about the information in this white paper or about AIR s modeling solutions for natural catastrophes in India, please contact Prakash Agarwal at ABOUT AIR WORLDWIDE AIR Worldwide (AIR) is the scientific leader and most respected provider of risk modeling software and consulting services. AIR founded the catastrophe modeling industry in 1987 and today models the risk from natural catastrophes and terrorism in more than 90 countries. More than 400 insurance, reinsurance, financial, corporate, and government clients rely on AIR software and services for catastrophe risk management, insurance-linked securities, detailed site-specific wind and seismic engineering analyses, and agricultural risk management. AIR is a member of the Verisk Insurance Solutions group at Verisk Analytics (NASDAQ:VRSK) and is headquartered in Boston with additional offices in North America, Europe, and Asia. For more information, visit AIR Worldwide 6

The AIR Multiple Peril Crop Insurance (MPCI) Model For The U.S. According to the National Climatic Data Center, crop damage from widespread flooding or extreme drought was the primary driver of loss in

The AIR Inland Flood Model for the United States In Spring 2011, heavy rainfall and snowmelt produced massive flooding along the Mississippi River, inundating huge swaths of land across seven states. As

INTRODUCTION TO STORM SURGE Introduction to Storm Surge BOLIVAR PENINSULA IN TEXAS AFTER HURRICANE IKE (2008) What is Storm Surge? Inland Extent Storm surge can penetrate well inland from the coastline.

Are You in the Path of a Rate Increase Storm? Gallagher Property Practice The Impact of Superstorm Sandy on the Property Insurance Market Are You in the Path of a Rate Increase Storm? Will commercial insurance

7) Coastal Storms: Multi-Hazard Analysis for New York City a) Hazard Profile i) Hazard Description Coastal storms, including nor'easters, tropical storms, and hurricanes, can and do affect New York City.

MODELING SANDY: A HIGH-RESOLUTION APPROACH TO STORM SURGE October 2013 1 1 Originally released in February 2013, this document reflects updated meteorological observations, industry economic and insured

Facts About Hurricanes Page 1 of 2 Name What are hurricanes? Hurricanes are tropical storms with winds greater than 74 miles (119 kilometers) per hour. After a tropical storm reaches 39 miles (63 kilometers)

Catastrophe risk and the cost of real estate insurance Catastrophe risk and the cost of real estate insurance Any real estate company that owns property in states exposed to hurricanes or earthquakes is

The IPCC Special Report on Managing the Risks of Extreme Events and Disasters to Advance Climate Change Adaptation A changing climate leads to changes in extreme weather and climate events 2 How do changes

Public Private Partnerships in Disaster Risk Management Reto Schnarwiler 22 February2007 Risk management needs of the public sector Governments are exposed to a variety of risks explicitly by default as

Disaster in India Past, Present and Future Disasters in India Moving away from the Great Bengal famine of 1769-1770 in which a third of the population perished. The Chalisa famine of 1783, the Doji Bara

HOMEOWNERS INSURANCE ACT OF 2010 The purpose of the Act is to promote the public welfare by regulating Property Casualty Rates to the end that they not be excessive, inadequate or unfairly discriminatory;

NATURAL HAZARDS & NATURAL DISASTERS The World is always changing. Natural disasters are changes which are so great they may cause damage to the shape of the land or to the lives of people and other living

sample The IPCC Special Report on Managing the Risks of Extreme Events and Disasters to Advance Climate Change Adaptation A changing climate leads to changes in extreme weather and climate events 2 Impacts

APPENDIX A : 1998 Survey of Proprietary Risk Assessment Systems In its 1997 paper, the working party reported upon a survey of proprietary risk assessment systems designed for use by UK household insurers

4.7 Explain How Can You Predict When Severe Weather Will Occur? In this Learning Set, you have been exploring how winds and oceans affect weather and climate. You then used what you know to explain how

TESTIMONY OF JACQUES E. DUBOIS CHAIRMAN AND CEO, SWISS RE AMERICA HOLDING ON BEHALF OF SWISS RE BEFORE THE UNITED STATES SENATE COMMITTEE ON BANKING, HOUSING AND URBAN AFFAIRS OVERSIGHT OF THE TERRORISM

HURRICANE SANDY THE TENTH HURRICANE AND FIRST SUPERSTORM OF 2012 October 22 November?, 2012 Hurricane Sandy This slide presentation is by Walter Hays of the Global Alliance for Disaster Reduction walter_hays@msn.com

Impacts of Global Warming on Hurricane-related Flooding in Corpus Christi,Texas Sea-level Rise and Flood Elevation A one-foot rise in flood elevation due to both sea-level rise and hurricane intensification

Weather Forecasting Webquest Name Begin by going to the following website: http://www.oar.noaa.gov/k12/html/forecasting2.html Click on the Get info.1 link Weather Symbols Click on the symbols site. Read

1. Incredible India Shade the map on the next page, to show India s relief. The correct shading is shown on the final page! Incredible India India The DCSF supported Action plan for Geography is delivered

It s HURRICANE Season! Are You Ready? It is very important for you to understand the terminology used when giving you information on the severity, intensity, and disaster potential of the weather during

Texas State Senate Subcommittee on Flooding and Evacuations Testimony of Robert Eckels 18 October 2010 The challenges of Hurricanes and Flooding can best be illustrated in the Tale of Two Storms. Tropical

CCRIF: Application of Risk Analysis and Modelling in the Insurance Sector Technical Cooperation Workshop for Development of the Caribbean Regional Cooperation Programme in Multi-Hazard Early Warning System

Climate Change and Insurance Challenges and Opportunities Why do we care? Insurance key to our economy keeps risk within reasonable limits so businesses can invest and grow and so individuals can recover

Climate Change in North Carolina Dr. Chip Konrad Director of the The Southeast Regional Climate Center Associate Professor Department of Geography University of North Carolina at Chapel Hill The Southeast

TESTIMONY BY GORDON STEWART PRESIDENT INSURANCE INFORMATION INSTITUTE NEW YORK, NEW YORK BEFORE THE HOUSE FINANCIAL SERVICES SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS AND SUBCOMMITTEE ON HOUSING AND

THE TRAVELERS INSTITUTE Travelers Coastal Wind Zone Plan A Comprehensive Plan to Improve Availability and Affordability of Named Storm Wind Insurance for Coastal Homeowners Number of Hurricanes per Year,

Geohazards: Minimizing Risk, Maximizing Awareness The Role of the Insurance Industry Prof. Dr. Peter Hoeppe Head of Geo Risks Research Munich Re International Year of Planet Earth, Paris, 13 February 2008

Disclaimer: This web page is designed to aid farmers with their marketing and risk management decisions. The risk of loss in trading futures, options, forward contracts, and hedge-to-arrive can be substantial

APPLICATION OF GIS AND REMOTE SENSING IN DISASTER PRONE AREAS: A CASE STUDY IN COASTAL KERALA DISASTER Disaster is an unpleasant event than occurs with little or no warning which results in economic disruption,

Disaster Risk Reduction through people centered National Multi-hazard Early Warning System in the context of Maldives Abdul Muhusin, Deputy Director Department of Meteorology, Maldives Fourth Technical

SITUATION REPORTS IN INDIA-1 30 th July, 2015 SITUATION IN INDIA: Incessant rainfall in the states of Gujarat and Odisha has created havoc to the normal life of the people. In Howrah district of West Bengal,

Typhoon Talas, Central Japan Tetsuya Okada It has been six months since the devastating 2011 Tohoku earthquake and tsunami hit Japan. While the country was working on the recovery from the massive-scale

New Zealand Society for Earthquake Engineering Saturday 11 April 2015 Rotorua Annual Likelihood National Severe weather Hazard Risks 10 % Once a decade 1 % Once a century Large rural flood Major transport

INSURANCE IN MISSISSIPPI 10 YEARS AFTER KATRINA Mike Chaney, Commissioner A publication of the Mississippi Insurance Department August 2015 Message from Commissioner of Insurance Mike Chaney One of the

Wind vs. Water and Unique Monroe County Mitigating Factors for Wind Damage A Presentation to the Florida Commission on Hurricane Loss Projection Methodologies Prepared by the Grassroots Organization FIRM

Pakistan: Cyclone PHET Information bulletin n 02 TC-2010-000108-PAK 7 June 2010 This bulletin is being issued for information only and reflects the current situation and details available at this time.

AIR Hurricane Model for the United States The steady increase in the number and value of coastal properties continues to raise the risk of catastrophic losses from hurricanes. Companies need a robust model